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Economic depression adds to woes

With much of the Eurozone faltering and US growth sluggish, shipping lines on the Mediterranean to North America trade need to take decisive action.

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It’s proving to be a bad time to be involved in the supply chain around the Mediterranean. Official second quarter statistics reveal a French economy with zero growth, near stalled growth in Italy and Spain, and a rate of economic expansion at half its level from the previous quarter in the wider Eurozone. The economy on the other side of the Atlantic isn’t able to offer much solace either: the latest gross domestic product data for the US shows that the economy grew at a weaker-than-expected 1.2% annualised rate between April and June. None of this bodes well for container lines operating on Mediterranean to North America services.

While traffic has plateaued at the 120,000 teu mark on the stronger westbound Mediterranean-North America leg, this marks a drop of 4% year on year, confirming that weak regional economic growth is taking its toll. The eastbound North America-Mediterranean leg displayed a similar picture with traffic at 62,000 teu in May, virtually unchanged from the previous month, but down 9.1% y/y.

The rolling average confirms the trends, with westbound traffic slipping to 6.7% in May from 8.3%, while eastbound traffic stayed firmly in negative figures at -5.9%. With the peak season fast approaching, shipping lines have made limited cuts to capacity on the trade in a bid to shore up freight rates. But with expectations that the peak season may be nothing more than a damp squib on the key trades, any cuts may prove to be too little too late on this trade. The ‘cuts’ saw westbound capacity fall slightly to 186,000 teu in July. However, to put this in perspective, capacity on this leg is still up 9.4% y/y.

Eastbound capacity also dipped slightly to 171,000 teu, but this still marks a y/y rise of 9.5%. Musical chairs seems to be the favoured game on this trade as shipping lines opt for tweaks of services over sharp cuts. For example, Hapag-Lloyd is fleshing out its eastbound Mediterranean to North America services, adding Tangier to the service. The German carrier has also widened its coverage of this seven ship standalone Mediterranean-US Gulf service, MGX, to include Port Everglades. Hamburg Süd and Zim currently have slots on the service. Ships now call at Cagliari, Livorno, Genoa, Barcelona, Valencia, Port Everglades, Kingston, Vera Cruz, Altamira, Houston, New Orleans, Tangier Med and back to Cagliari. Turning in seven weeks, the service employs six 4,300 teu vessels and a smaller 2,700 teu ship. The addition of Tangier Med will connect MGX to West Africa through transhipment to the Europe-West Africa service.

On another service, it’s a policy of one in, one out. APL now offers slots on the Mediterranean-US East Coast loop from CMA CGM, China Shipping, Hanjin and UASC. The arrival of APL in the service coincided with the departure of Hapag-Lloyd who previously hired slots. The Amerigo service offers six ships of around 6,600 teu which call at Marsaxlokk, Leghorn, La Spezia, Genoa, Marseilles, Barcelona, Valencia, New York, Norfolk, Savannah, Miami, Algeciras, Valencia and back to Marsaxlokk. However, Marsaxlokk is not offered by APL.

As a result of the tentative rather than decisive changes to capacity, utilisation on the stronger westbound leg remains stuck in the low 60% range. But in a minor reflection of tinkering with capacity, the all-in rate charged by forwarders for spot cargo from Genoa to New York crept up to $1,830/40ft in June, according to Drewry’s Container Freight Rate Insight.

Eastbound utilisation fared worse, dropping to a new low in May of 35.4%. This had the anticipated effect on freight rates which reached a paltry $790/40ft in June on an all-in rate charged by forwarders for spot cargo from New York to Genoa.

Notes: *Based on effective capacity after deductions are made for deadweight and high-cube limitations and then again for out-of-scope cargoes, ie. those relayed to areas outside the range. Where relevant, operational capacities have also been adjusted for slots allocated to wayport cargoes. Data subject to changeSource: Drewry Maritime Research

Our view

The downbeat economic outlook for the load and discharge ports on this services does not bode well for shipping lines that are not prepared to take clear action on over capacity. Decisive action needs to be taken to stem a capacity glut that will not be easily mopped up by either side of the Atlantic.